9 Financial Mistakes to Avoid in your 20s & 30s

It’s common to make financial mistakes in your 20s and 30s. However, to set yourself up for economic success, you must avoid common financial mistakes young adults make as early as possible.

By doing so, you can reduce your expenses, diversify your income, and establish healthy financial habits, helping you achieve your short and long term financial goals.

Even if you are nearing retirement or have already retired, consider sharing this information with your younger family members!


Mistake I: Depending On Credit Cards

  • Credit cards can help build your credit and provide you with easily accessible funds.
  • However, if not used responsibly, these cards can also damage your credit, plunge you into debt, and force you into a cycle of paying high interest rates.
  • Aim to use only 30% of your credit limit and repay your balances in full before the due date to ensure your credit card works optimally for you. This responsible credit management will build your credit score, not hinder it.

Mistake II: Spending More Than You Earn

  • One of the worst financial mistakes you can make is spending more money than you earn. This unhealthy habit can lead to debt, drain your savings, and trap you in a paycheck-to-paycheck cycle even after early adulthood.
  • Tracking every dollar you spend is an easy way to ensure you’re not spending more than you earn. By getting a clear picture of how your money flows, you’ll know exactly where to make adjustments to lower your expenses and save more money.

Mistake III: Not Setting A Budget

  • Establishing a budget is a key step toward achieving financial freedom . It allows you to control where your money should go.
  • Unfortunately, many young adults continue to spend lavishly without a clear plan for balancing income with expenses, which causes them to overspend and jeopardize their financial health.
  • If you want a financially stable future, you should know how to set and stick to a budget. Budgeting apps with user-friendly interfaces are readily available online, so you don’t need to start from scratch or deal with complex financial tools.

Mistake IV: Not Setting Goals

  • It’s hard to make financial sacrifices if you don’t know why you’re making them.
  • Set achievable short and long-term financial goals for yourself. Doing so will help you stay on track with your financial journey and allow you to assess whether or not you’re making positive progress for your finances.

Mistake V: Not Earning Money In Your Free Time

  • Another big mistake young people often make is failing to diversify their income sources. Although a full time job may be enough to cover your day-to-day expenses and current wants, relying on it alone can leave you vulnerable to financial uncertainty.
  • For example, if you are laid off unexpectedly, it helps to have a financial cushion while you look for another job. Hence, during your free time, consider taking up a side hustle that you enjoy but can still earn with.

Mistake VI: Not Building A Credit Score

  • Having good credit gives you better access to low interest rates, easier loan approvals, and the possibility of a higher credit limit. Unfortunately, many young people are still unfamiliar with building and maintaining their credit scores in their 20s and 30s.
  • If you want a headstart from the crowd, you should build your credit score by following healthy financial habits, such as paying your bills on time and not maintaining a minimum order balance.
  • Once you’ve established a high credit score, you’ll be able to access and enjoy the financial products and services you need more easily.

Mistake VII: Making Large, Unnecessary Purchases

  • Making large purchases can be exciting, especially for young adults just starting to enjoy financial independence.
  • However, if you constantly overcharge your credit card to purchase unnecessary big ticket items, you’ll be setting yourself up for excessive debt and high interest payments.
  • Before buying anything that costs a couple hundred dollars or more, assess whether you need it, whether you can afford it, and whether there are cheaper alternatives.
  • If you want to buy a specific luxury item, a smart plan is to save up for it over time.

Mistake VIII: Not Having An Emergency Fund

  • You never know when you’ll encounter a rough patch due to an emergency, such as job loss or medical expenses.
  • Without an emergency fund, these unfortunate events can dig deep into your pockets, disrupting your money allocation and possibly leading to financial instability.
  • There’s no strict rule on how much you should save for emergencies, but I always recommend having enough funds to cover at least three to six months of your expenses.

Mistake IX: Not Saving For Retirement

  • In your 20s and 30s, retirement feels so far away that you’re likely not considering saving for it yet. However, saving for this phase of life early on is crucial if you want your retirement planning to be manageable, cost-effective, and stress-free.
  • By starting to save while young, you harness the power of compound interest and make it a habit to set aside money in your nest egg. Moreover, you’ll increase your chances of retiring young, as retirement is more dependent on how much you have saved than on your age.

 


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Written by Enoch Omololu, Contributor

© 2024 Forbes Media LLC. All Rights Reserved

This Forbes article was legally licensed through AdvisorStream.

 

 

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